This is the headline I read on the CNBC.com website on Friday, June 28, 2008. The equity markets had been bashed badly for the past one month or so. I actually found it amusing that yet another article on the same site said “Time to Short the Market?” The writer and guess analysts should have had advised the readers to begin to think bearish markets on June 6, the day which saw the near 400 points crash in Dow Jones Industrial Average index, instead of waiting until another 700 points loss to warn of a bad market and time to go short. While they may be beginning to consider shorting the markets now, many smart hedge funds traders had already had their great run for the past 14 days.

Well, it is still not too late to think of shorting the market now as there is still plenty of room for more drop in the medium term. What contradicts this news is the main article of this headline. “Stocks near bear market” as the story goes. “Investors are primarily just sitting out the near 20% declines in the three major indexes that constitute a bear market. They’re holding on to more cash, taking advantage of the commodity boom and rebalancing portfolios to make sure they’re well diversified,” said Jeff Cox. What he and many other investment analysts do not realize is the negative consequence of “holding on to more cash” by the big fund managers. Furthermore, when the big fund managers diverted their funds to commodities, municipal funds, certificates of deposit and other low-yielding money markets, they inadvertently deprive off the much needed cash for the equity markets. When the liquidity is low, there wouldn’t be any buying force to support and move the markets. If the big fund managers are not buying, who else will?

He might be right about the investors were “not panic - yet.” But usually when that happens, it would be too late to do anything to mend the damage. The big fund managers are definitely going to hold on to their funds more tightly or to channel them to other “safe-heaven” investments such as the Treasury Bonds and money market securities. The self-fulfilling prophecy will keep the market falling. By then, the market sentiment will get so low that no one would want to consider investing in the stock markets for a very long time.

Perhaps the writer and his guess commentators meant to say that the bearish sentiment of the market had not reached the tipping point of a panic situation. But judging from the barrage of bad news including high unemployment claims, increased personal and credit card debts in the wealthy households, poor home sales, credit crunch in banks, weakened dollar, lower corporate earnings, and inflationary pressure, it is hard for any sane and sensible investor to believe that there is light in the tunnel for an upturn of the market. I believe the tipping point will eventually be reached and crossed. If I am going to look at putting my money in the right market, it will be on the down market, not up. “You’d be wrong” as purported to suggest the end of a market downturn should probably be hurled back to you.

I may sound gloom and doom, but I am not a pessimist. I just want to be realistic about what actually happened and is going to happen in the markets, and then do the right thing. We are not near the bear market; we are in the bear market. Period.

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